Why Rent Growth Is Guaranteed – And Why First Home Buyer Policy Is Driving It

A Strategic Discussion for Investors Who Want to Understand the System, Not Fear It (and some great BBQ topics for the summer season).

Every property investor eventually confronts the same question, “Where will rents go from here?”

But the better question, and the one Australia’s most successful investors ask, is this:

“Why is rent growth now built into the structure of Australia’s housing market?”

Once you understand why, the path forward becomes far clearer. Because what looks like market noise is actually a predictable outcome of the incentives, constraints, and contradictions built into Australia’s housing system.

And one of the most powerful, least-discussed drivers of long-term rental pressure is the very thing designed to make buying easier, First Home Buyer (FHB) policy.

Bet you didn’t see that coming … unless you read the headline.

The Pressure Valve Has Burst: The Rental Market Is Now the Breaking Point

Australia’s rental market isn’t tight. It has structurally failed.

If you have read any of our reports you will know that vacancy rates are below 1% nationally, with many regions sitting at 0.5–0.6%, or functionally zero.

At these levels:

• every new lease resets price upwards,
• competition is immediate,
• tenants stretch to secure anything available, and
• even stable, employed families struggle to find a roof.

Independent analysis (Conisbee, 2025) shows Australia is losing the equivalent of 24 affordable rentals per day. A direct result of investor exits, rising holding costs, and the evaporation of low-cost private rentals.

On the Sunshine Coast, the pressure is even clearer. Queues for inspections, families offering months of rent upfront, and essential workers commuting hours or sleeping in cars.

This is not a “moment in the cycle.” It is a structural breakdown brought on by:

• record population growth,
• years of undersupply,
• stalled planning systems,
• shrinking investor participation, and
• public housing in net decline.

And in the middle of all this pressure, governments have accelerated demand through First Home Buyer incentives.

Not supply.
Demand.

The Hidden Driver: FHB Schemes Don’t Add Homes, They Add Competitors

This is the part almost no one talks about.

FHB grants, guarantees, stamp duty concessions and deposit schemes all sound helpful. But none of them add a single dwelling to the market.

What they do add is buying power, injected directly into the entry-level price band, where both FHBs and investors (and subsequently tenants) compete.

This creates a perfect storm:

1. More demand for the same limited homes: 

Prices rise. Not because homes are worth more, but because more people can now bid for them.

2. Investors are pushed aside:

Stricter lending, higher rates, insurance, tax uncertainty and rental reforms have already thinned investor numbers. Now they face both a Federal and a State-sponsored competitor.

3. Fewer new rental properties enter the system:

When investors miss out on buying, the rental pool doesn’t grow.

4. FHBs who still can’t buy stay in the rental market longer

Meaning the pressure doesn’t ease, it intensifies.

This is the paradox: Programs aiming to ‘fix’ rental stress are actively deepening it.

Because they stimulate demand without addressing the single real solution: structural supply.

Why FHB Policy Increases Both Prices AND Rents

To understand the impact on investors, we need to return to fundamentals.

Property prices are a function of supply and demand.
Rents are a function of rental supply and rental demand.

FHB incentives increase demand for ownership stock, but they do nothing to expand rental stock.  Worse, they reduce it.

Here’s how the pressure builds:

A. More buyers chasing the same stock pushes prices higher

Economists call this “capitalisation”: the grant or incentive simply becomes part of the sale price.

B. FHBs and investors chase identical products

The “affordable” segment: townhouses, smaller houses, terraces, 2-bed units. Exactly the forms we need more of, and exactly the forms councils often slow down.

C. Rising prices lock more FHBs out

They stay renters. For longer. In greater numbers.

D. Investors exit faster than they enter

Australia’s rental pool is shrinking, and has been for years.

E. Nothing is replacing the lost rental stock

Institutional investment is tiny. Public housing has declined from ~315,000 dwellings (2015) to ~286,000 (2024). Planning delays mean new supply takes years.

Put simply: FHB demand increases buying competition, reduces rental investment, and ensures the rental pool contracts.

Which guarantees the next outcome:

Why Rent Growth Is Now Structural, Not Cyclical

The media talks about “rental spikes”. But spikes end.

This is different.

Australia’s housing system has evolved into one where rental pressure is persistent because every lever controlling supply is failing at the same time:

• Approvals are too slow

Some councils approve fewer than half the dwellings identified in state housing targets.

• Mandated “affordable mix” rules break feasibility

On the Sunshine Coast, councils increasingly require 1–2 bedroom dwellings in projects, even when developers and banks say the mix won’t work for project feasibility*.

The intention is noble. The outcome is fewer projects proceeding at all.

*side note: the cheapest thing to build is a lowset 4 bedroom home, not 1 and 2 bedroom apartments or townhouses. The smaller the housing type the more the hard costs (bathrooms, kitchens, etc) have to be amortised (spread across) the cost of the construction. The issue also exists for government fees. For the Sunshine Coast, infrastructure charges per bedroom are $20,000 for a 1 or 2-bedroom dwelling or $28,000 for a 3 or more-bedroom dwelling. So the most expensive construction rates are smallest homes. Want to stop a development, ask them to build ‘theoretically’ cheaper homes while charging them more to do it. Anyways, back to the main story here …

• Population growth is outrunning construction two-to-one

Net migration alone adds more renters each year than all new housing completions combined.

• Public housing is shrinking faster than it is being built

Waitlists exceed 170,000 households nationally.

• Investor numbers have not recovered since the lending reforms of 2017–2020

The private market (us), which supplies ~90% of rentals, has been squeezed hardest.

• Developers cannot deliver at the pace policy assumes

Rising costs, labour shortages, planning risk and feasibility constraints mean pipelines break long before they reach construction.

The result: Each year, demand rises and supply falls further behind.

That is a structural trend, not a cycle.

The Irony: FHB Policy Is Strengthening Investor Returns

It feels counterintuitive. But once you strip the emotion out and look at the system objectively, the pattern is clear:

• FHB schemes inflate entry-level prices.
• Investors buy fewer properties.
• Fewer rental homes are created.
• FHBs who miss out remain renters.
• Rental supply shrinks.
• Rental demand grows.
• Rents rise.
• Yields strengthen.
• The value of investor-held assets compounds faster.

This does not mean FHBs are to blame. They are just responding to incentives.

But for investors, it means that the very policies meant to help FHBs are increasing long-term rental returns for investors who stay in the market.

What This Means for Today’s Investor

Here is the uncomfortable truth, and the opportunity …

The rental market is tight today, but it will be tighter tomorrow.

Not because of boom cycles, but because the system cannot create rental supply fast enough.

FHB incentives will continue to redirect capital into the ‘affordable’ buying band.

This keeps investor competition high and rental creation low.

Planning systems are not shifting quickly enough to unlock the missing middle.

Terraces, townhomes and small, well-located dwellings remain undersupplied.

Structural pressure always rewards those on the right side of the equation.

Investors who provide rental homes in markets where supply cannot keep up benefit from the very forces constraining the system.

This is not speculation. This is strategy.

And like our Explorer Guide reminds us: all risk comes from a lack of knowledge.

(click here for more game changing life tips)

But once you understand the “why”, the fear disappears and the strategy becomes clear.

Verdict: Investors Who Stay Receive the Tailwind Others Miss

The system is now engineered, unintentionally, to reward those who stay invested.

• Higher rents
• Tighter vacancies
• Stronger yields
• Deep demand for the right built form
• Limited new supply
• Growing structural undersupply

And a politically popular suite of FHB incentives effectively locking in future rental pressure.

For investors, the message is simple:

1. Don’t get distracted by headlines.
2. Understand the structure.
3. Make decisions based on strategy, not sentiment.

If you want to map the right path, one built for the market we actually have, speak with our team.

Like the Explorer guide (have you downloaded it yet?) emphasises, knowledge becomes understanding when you have the right people around you.

We’re here to help you build a strategy that turns today’s pressure into tomorrow’s freedom.